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Nicky opened a savings account with a single deposit of R1000 on 1 April 2020. She then makes 18 monthly deposits of R700 at the end of every month. Her first payment is made on 30 April 2020 and her last payment on 30 September 2021. The account earns interest at 15% per annum compounded monthly. Determine the amount that should be in her savings account immediately after her last deposit is made (that is on 30 September 2021)​

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Final answer:

To calculate the total amount in Nicky's savings account after the last deposit, we determine the future value of her initial deposit and the future value of her monthly deposits using the formulas for compound interest and annuity, respectively. Then, we add both amounts to get the total savings.

Step-by-step explanation:

Calculating the Future Value of Savings Account

To determine the amount in Nicky's savings account immediately after her last deposit on 30 September 2021, we need to calculate the future value of a series of monthly deposits (ordinary annuity), in addition to the future value of the initial deposit. Since the interest is compounded monthly, we will use the future value formula for an annuity:


FV = Pmt * [((1 + r)^n - 1) / r]

Where:

FV = Future Value of the annuity
Pmt = Monthly payment amount

r = Monthly interest rate (annual interest rate / 12)

n = Total number of payments

For Nicky's account:

Pmt = R700

r = 15% / 12 per month = 0.0125

n = 18 payments (Apr 2020 to Sep 2021)

The future value of her monthly deposits (FV_annuity) can be calculated as follows:


FV_annuity = R700 * [((1 + 0.0125)^18 - 1) / 0.0125]

Additionally, the initial deposit of R1000 will also earn interest for 18 months. Its future value (FV_initial) will be:


FV_initial = P * (1 + r)^n

Where:

P = Initial deposit

For the initial deposit:


P = R1000

r = 0.0125 (monthly interest rate)

n = 18 months


FV_initial = R1000 * (1 + 0.0125)^18

Finally, to find the total amount in the account after the last deposit, we add both future values:


Total = FV_annuity + FV_initial

After the calculations, we plug in the values and calculate the final amount.

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